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Term deposit vs saving account. Which is right for you?

01 Aug 2018

Saving for a holiday? A house? A major life event? Or just for a rainy day? There are a few options when it comes to making the most of the money you have, each with slightly different pros and cons. The two most common pathways are either a term deposit or a bonus savings account.

We’ve put together some pros and cons of each to help you weigh up which one is right for you.

Term deposit

Fixed term deposits offer a guaranteed rate of return on your money for the life of an investment. They are also a low maintenance option, you can just set and forget!

Pros

Your savings are locked away, which means you won’t be tempted to touch it

Interest rate remains fixed for a set period so you’ll be able to calculate how much you’ll earn

At Bank Australia, you have the choice of monthly interest or interest at maturity (the end of the agreed term e.g. 6-months)

Cons:

Fees can apply if you wish to access your savings before the term deposit matures

You don’t benefit from interest rate rises, say if rates rise mid-term (which is why most people opt for a 3 or 6-month term.

Bonus savings account

More often than not, bonus savings accounts offer a base rate of interest as well as bonus interest if you stick to the withdrawal/deposit conditions of the account. Most banks offer these types of accounts but with varied interest rates. At Bank Australia you can earn up to 2.60% interest with a Bonus Saver.

Pros

You can earn a high rate of interest on a small balance – start with $100 and build from there with a $100 a month deposit

Your savings are accessible if you do need them (but you lose your bonus interest)

Getting bonus interest can encourage you to save if don’t make any withdrawals and deposit a minimum of $100 during the month.

Cons

Interest rates on savings accounts are typically lower than fixed term deposits and they can change at any time.

If you access your funds during the month, your forfeit bonus interest. Base interest rates are generally low, so your return could be modest.